4.5.1 Public Expenditure

Question 1

what are the 3 types of public expenditure?

Answer 1

1. capital expenditure
2. current expenditure
3. transfer payments

Question 2

what is capital expenditure?

Answer 2

government spending on assets that have long term rewards

eg: hospitals/ wind turbines

Question 3

what is human capital?

Answer 3

the level of skill and knowledge ina a population

Question 4

what is current expenditure?

Answer 4

government spendning on recurring costs (day to day things to keep the economy running)

wages/ raw materials

Question 5

what are transfer payments?

Answer 5

government spedning for which nothing is recieved in return

eg: child benefits/ state pensions/ jobseekers llowance

Question 6

what is the difference between government spending in AD and public exepnditure?

Answer 6

government spending doesn’t include transfer payments

Question 7

what factors influence public expenditure?

Answer 7

• age distribution
• income
• political values

Question 8

how does age distribution affect public expenditure?

Answer 8

• ageing populations: spend more on pension/ healthacre
• young population: spend more on education

Japan spend 10% of GDP on pensions

Question 9

how does income affect public expenditure?

Answer 9

• more developed economies = more public ependiture
• less developed= less public expenditure,

however depends of types of goods (inferior goods)

Question 10

what is Wagner’s Law?

Answer 10

states that demand for public sector goods is income elastic

as incomes increase so does public expenditure

Question 11

why may wagners law not apply?

Answer 11

some public sector goods are inferior goods, which means that an increase in incomes will lead to a decrease in demand for public goods. There will therfore be a decrease in public expenditure

eg: public transport / education

Question 12

how do political values affect public expenditure?

Answer 12

• higher trust in governments: higher taxes and higher public expenditure
• low trust in government: elect politician with lower taxes and less public expenditure

Question 13

what are the effect of public exeonditure?

Answer 13

• productivity and growth
• living stnadrads and equality
• crowding out

Question 14

how does public expenditure affect productivity and growth?

and evaluation

Answer 14

• increase in productivity,, increase in producitivty, LRAS, economic growth
• However expenditure may not increase productivity if it is spent inefficiently on unnecessary spending or bureaucracy.

depends on how it is used

Question 15

how does public expenditure affect living standards and equality?

evalutation

Answer 15

• increase in living standards
• increased free healthcare spendning/ jobseekers allowance reduces inequality
• Evalutation: however this depends if public expenditure goes to services that benefir the poor. eg: millitary

Question 16

what are the two types of crowding out?

Answer 16

• resource crowding out
• financial crowding out

Question 17

what is resource crowding out?

Answer 17

• when all resources in the economy are being used efficently and the government increases public expenditure
• decreases the resources available to the private sector

Question 18

what is financial crowding out?

Answer 18

An increase in government borrowing will increase the demand for borrowed money. This will push up the price of money, which is known as the interest rate. This makes it more expensive for firms in the private sector to borrow, decreasing private sector investment